Grainger : Annual Results for the year ending 30 September 2021 (PDF)

18 November 2021

Grainger plc

Full year financial results

for the twelve months ended 30 September 2021

Robust performance; a period of momentum and growth

• Adjusted Earnings up +2%
• Profit before tax up +53%
• Like-for-likerental growth of +1.0%
• Occupancy of 94% in PRS portfolio by September, now 95%
• Passing net rental income 15% ahead of reported FY21 reported NRI
• PRS rent collection of 98%
• 6 new operational PRS assets added during FY21, totalling over 1,300 new homes, a record year of delivery and already 91.5% let
• 4 acquisitions for £299m during FY21
• PRS now represents 69% of Grainger's total portfolio

Helen Gordon, Chief Executive of Grainger, the UK's largest listed residential landlord, said:

"We have delivered a robust performance for the year, and with our strong strategic momentum we are entering our next phase of dynamic growth.

"Our success has delivered 53% growth in profit before tax, 2% growth in adjusted earnings and passing net rental income1 15% ahead of FY21 reported NRI, with our resilient regulated tenancy portfolio providing strong rental income growth and strong sales performance, which more than offset the slight reduction in occupancy in our PRS portfolio caused by the pandemic earlier in the year. We are proposing a final dividend of 3.32p per share2.

"Our well-established growth strategy has continued unabated with our delivery of more than 1,300 new operational PRS homes and four new acquisitions totalling £299m of investment.

"The UK private rented sector, particularly build-to-rent, remains a highly attractive sector to invest in. It proved resilient during the pandemic. Our strategy of investing in high quality, mid-market private rental homes in target cities across the UK, identified by our in-house research and aligned to sound responsible business and ESG values, remains the right strategy for Grainger.

"Looking to Grainger's future, we plan to increase our growth momentum and build upon our £3.1bn operational portfolio of 9,727 rental homes. Our £1.9bn PRS pipeline will more than double our net rental income. This growth will enable us to further enhance shareholder returns. The scalable platform we have developed delivers a compounding effect on earnings growth as we increase our top line rental income, which we expect to increase 2.5 times from our pipeline.

"Grainger is at an exciting point in its continued growth momentum, and with its compounding earnings growth potential, scalable platform and PRS pipeline, remains well placed to deliver continued growth in shareholder returns."

Highlights

• +2% growth in Adjusted Earnings3 to £83.5m
• Profit before tax up +53% to £152.1m

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• Passing net rent was up +15% to £81m on FY21 reported net rental income (NRI). This follows the successful lease up of our newly launched schemes and a swift reduction in voids in our PRS portfolio, demonstrating the improvement on our reported NRI for the year which was £70.6m, which reflects our investment sales programme and the slightly higher than typical void rate in our PRS portfolio, a result of Covid-19 lockdowns
• Occupancy further increased to 95% today, up from 89% at the end of August and 94% at the end of September
• EPRA Net Tangible Assets (NTA) rose 4% to 297p per share, supported by the successful lease up of our five new PRS schemes in the year
• Proposed final dividend of 3.32p per share, with a total dividend for the year of 5.15p per share, and a total dividend distribution of £36.9m in line with last year (FY20: £36.8m)
• Total operational portfolio of 9,727 rental homes valued at £3.1bn, more than two thirds of which is PRS, and a £1.9bn PRS pipeline of a further 8,373 rental homes

Financial Highlights
Income return	FY20	FY21	Change
Rental growth (like-for-like)	3.0%	1.0%	(195) bps
PRS rental growth (like-for-like, after incentives)	2.5%	0.3%	(218) bps
Regulated tenancy rental growth (like-for-like)	4.6%	3.6%	(99) bps
Net rental income (Note 5)	£73.6m	£70.6m	(4)%
Passing net rental income	£74.1m	£80.9m	+9%
Adjusted earnings (Note 2)	£81.8m	£83.5m	+2%
Profit before tax (Note 2)4	£99.1m	£152.1m	+53%
Earnings per share (diluted) (Note 9)4	12.7p	16.1p	+27%
Dividend per share (Note 10)	5.47p	5.15p	(6)%
Capital return	FY20	FY21	Change
EPRA NDV per share (Note 3)4	273p	284p	+4%
EPRA NTA per share (Note 3)	285p	297p	+4%
Net debt	£1,032m	£1,042m	+1%
Group LTV	33.4%	30.4%	(301) bps
Cost of debt (average)	3.1%	3.1%	+3 bps
Reversionary surplus	£301m	£265m	(12)%
Total Property Return5	5.4%	7.5%	+209 bps
Total Accounting Return (NTA basis) (Note 3)	3.6%	5.5%	+188 bps

Positive rental growth

• +1.0% like-for-like rental growth6 across our total portfolio (FY20: 3.0%)
• 0.3% like-for-like rental growth in our PRS portfolio after incentives are taken into account, while we prioritised occupancy over rental growth (FY20: 2.5%)

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• Excluding incentives, like for like rental growth in our PRS portfolio would have been +1.6%
• The difference in rental growth performance between our London and regional portfolios has been relatively minor, with a slightly earlier recovery in occupancy in the regions, and with London demand coming back strongly in August and September
• 3.6% like-for-like rental growth in our regulated tenancy portfolio (FY20: 4.6%), which contributes 26% of our total net rental income
• Strong rent collection of 98%

Strong sales performance

• Strong performance with residential sales profit up +14% to £67.5m (FY20: £59.4m)
• The natural wind down of our regulated tenancy portfolio led to 7.3% of the portfolio being sold as they naturally became vacant during the year, capturing the valuation uplift
• In addition, we sold these vacant ex-regulated tenancy properties at prices on average 2.6% above valuations
• We also increased the speed of sales from 120 days to 108 days
• In addition to vacant sales, we continue to actively manage our portfolio through our asset recycling programme where we sell tenanted properties including regulated tenancies as investment assets without vacant possession, where we can capitalise on strong market dynamics or we feel we can enhance the overall performance of the portfolio. We accelerated our asset recycling this year to take advantage of the strong market. These investment sales totalled £81.7m, delivering £27.9m profit
• Total sales proceeds from our regulated tenancies totalled £117.9m, with £75.5m delivered from vacant sales and a further £42.4m delivered from tenanted regulated sales

Positive valuation performance

• Our portfolio valuation rose 4.5% by £142m, supported by strong lease up performance of our new PRS assets

PRS portfolio growth, driving future NRI growth

• 1,304 new PRS homes added to the portfolio this year, already 91.5% let at the end of October
• In addition to launching five schemes from our pipeline and acquiring a completed, stabilised asset in the period, we continued to add to our pipeline which stands at £1.9bn, 8,373 PRS homes:

1. Acquired Millwrights Place, Bristol - £63m, 231 homes

1. Acquired Becketwell, Derby - £38m, 259 homes

• 1. Acquired Merrick Place, West London - £141m, 401 homes
• Secured pipeline now totals £996m, 3,987 homes

Robust and flexible capital structure to support our growth

• Successfully raised £209m gross proceeds in an equity placing in September, with strong investor backing for accelerating our growth, with the proceeds deployed into three acquisitions
• We are in a strong liquidity position with £641m of total available headroom, ensuring that we have enough funding capacity to finance our entire committed investment pipeline
• LTV at 30.4% (FY20: 33.4%); taking account of future committed capital expenditure in our pipeline, LTV would be 40.1%
• No debt maturities until November 2022, with a weighted average debt maturity of 5.6 years (FY20: 6.6 years)
• Average cost of debt maintained at 3.1% (FY20: 3.1%)

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Operational highlights

Our leading operating platform and the actions we have taken to enhance it enabled us to capitalise on the reopening of the UK and the lettings market in late summer. We successfully returned our PRS portfolio back to pre-pandemic occupancy of 95% as of today. Looking forward, our platform also enables us to scale up and grow, delivering compounding earnings growth as we leverage our platform as we deliver our £1.9bn pipeline. Highlights over the year include:

• Continued investment in our CONNECT technology platform with new capabilities introduced including enhanced digital leasing, customer relationship management, supply chain management and repairs and maintenance management, including a new digitised repairs service for our customers
• 82% of all PRS customer online reviews were 5 out of 5 stars during the year
• Reduced our cost to let as we increased our in-house direct lettings capability
• Improved conversion rates through an improved customer journey experience

Outlook

Having delivered a robust performance for the year we are well positioned for a strong year of rental growth in FY22. With occupancy having now recovered to stabilised levels our focus will return to delivering rental growth and the associated valuation growth. As we grow over the medium term, delivering our pipeline and leveraging our platform, we will see significant net rental income growth translate into strong earnings and dividend growth. With funding already in place to deliver this secured pipeline we will continue to pursue further accretive growth opportunities and maintain our leadership position in the PRS sector.

Responsible business and ESG leadership

We continue to build on Grainger's socially-responsible business model of delivering good quality, mid- market rental homes with support for our customers and local communities.

We appointed Carol Hui to the Board as a Non-Executive Director, who will be the Chair of our new Responsible Business Board Committee which will be established in FY22.

We continue to reduce our environmental impact and are making good progress against our long-term commitments, including progress against our 2030 net zero carbon commitment.

We retained our top ESG benchmark scores.

We publish our first TCFD summary report today within our Annual Report and will be publishing our first ESG Summary Report in early 2022, expanding on the disclosure within our Annual Report.

Highlights for the year include:

Focus areas &

Long term commitments

Social impact	▪	Added over 1,300 mid-market rental homes to our operational
Measure and deliver a		portfolio
▪	Delivered 183 new affordable homes during the year and now have

positive social value	878 affordable homes in operation, representing 5% of net rental
	income
	▪ Defined our social value priorities
	▪ Embedded community engagement best practice blueprint and
	delivered 552 events for residents and local communities, including
	initiatives to support wellbeing and green living
	▪ Supported local people into employment (over 50% of new joiners in
	FY21 live within 5 miles of their workplace)

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• Helped alleviate youth homelessness and became a LandAid charity pro bono and First Steps partner with YMCA North Tyneside to create new accommodation for at-risk young people
• Provided subsidised accommodation to NHS workers during the pandemic
• Helped young people into work, specifically in property careers, with a particular focus on reaching those from under-represented groups, including

1. our graduate programme with four participants

1. expanded our apprenticeship programme to operations with three apprentices across the Group during the year

1. a partner of the TfL built environment educational engagement programme, and partnered with three different schools

• 1. funding a bursary for a young person from a disadvantaged background to attend university though the Worshipful Company of Chartered Surveyors
• Provided pro bono support to the East Cleveland Youth
  Homelessness Charity, as part of LandAid's pro bono charity programme

Diversity & Inclusivity	▪ Developed our strategic framework for diversity & inclusion
Ensure Grainger's	▪ Employee-led D&I Network delivered programme of activity for
	employees and residents
workforce is reflective
▪ Members of Real Estate Balance
of society
▪ Updated our design specification to enhance accessibility
Progress toward Net	▪ Despite growing our portfolio by over 1,300 homes, our carbon
Zero Carbon		footprint has remained the same. Emissions per £m value of assets
Net zero carbon for our		under management have reduced by 10%.
▪	Published Grainger's net zero carbon road map

operations by 2030	▪ Consolidating all purchased energy onto renewable or low carbon
(updated in FY21 to
energy contracts and in FY21 increased renewable electricity
cover all Scope 1 & 2
purchased to 84%
emissions)
▪ 85% of Grainger's PRS portfolio has EPC ratings C or higher, ahead
	of the 2025 mandatory deadline
	▪ Grainger properties emit 62% less CO2 on average than a typical
	home
	▪ COP26 Built Environment Virtual Pavilion Commercial Partner

Sustainable investment decisions

Integrate ESG into all investment decisions

• Between 2020 and 2021 we undertook major refurbishments on six properties achieving energy consumption reductions of up to 23% year-on-year, with total savings expected between 30-50%
• Issued our first TCFD summary report
• Developed Grainger's sustainable finance framework, which we will publish shortly, to enable us to access new sources of green and socially-responsible financing

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